2014 Top Stocks Market, Best Stocks Investment In 2014, Top Stocks For 2014: 9/28/14

In this article, let's take a look at Becton, Dickinson and Company (BDX), a $22.23 billion market cap company that provides a wide range of medical devices and diagnostic products used in hospitals, doctors' offices, research labs and other settings.

A Leader

The company has provided good returns on capital in the past, so we don´t fear with recent performance. We believe it will maintain its leading positions and return to its historical growth.

Major products in the core medical systems division (53.4% of fiscal 2013 sales), provides it with huge cash flows for reinvestment into its business. Further, a substantial difference with its peers is the strong focus the company has on emerging markets, regions which are expected to generate approximately 25% of the total sales by 2017.

The firm faces price risk due to the current environment with certain pressure in commodities prices. So it is a must to continue having an operational discipline to maintain its earnings growth.

R&D and Acquisitions

Research and development spending last year reached $494.6 million (about 6% of sales), compared with $470 million in the previous year. Through a series of acquisitions, the firm expands its scope. In 2011, it acquired Accuri Cytometers, Inc., a developer and manufacturer of personal flow cytometers for researchers. In the same year, it acquired Carmel Pharma, AB, a Swedish company that manufactures the PhaSeal System. Two more acquisition happened in 2012: In August it acquired Sirigen Group Ltd., a developer of polymer dyes used in flow cytometry and in December, Safety Syringes, a developer of antineedlestick device for prefilled syringes.

Attractive Dividend Policy

Becton Dickinson has an attractive dividend policy showing its commitment to return cash to investors in the form of dividends, as it generates healthy cash flow on a regular basis. The current dividend yield is 1.9%, which is quite good to protect the purchasing power, especially considering the consistency of track-record dividends payments and favorable expectations regarding dividend growth for the next years. Dividends have been paid since 1926.

Revenues, Margins and Profitability

Looking at profitability, revenues increased by 9.86% and led earnings per share to increase in the most recent quarter compared to the same quarter a year ago ($1.08 vs $1.01). During the past fiscal year, the company reported lower earnings of $4.52 versus $4.93 in the prior year. This year, Wall Street expects an improvement in earnings ($4.85 versus $4.52).

Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.

Ticker	Company	ROE (%)
BDX	Becton, Dickinson and Company	19.09
GIB	CGI Group Inc	18.07
DOX	Amdocs Ltd	12.30
IT	Gartner Inc	65.84
TDC	Teradata Corp	19.67
IGTE	Igate Corp	122.78
	Industry Median	8.62

The company has a current ROE of 19.09%, which is higher than the industry median and the ones exhibited by CGI Group (GIB) and Amdocs (DOX). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking those levels or more, Teradata (TDC) could be the option. For more attractive ROE, Gartner (IT) and Igate (IGTE) have extremely good ratios. It is very important to understand this metric before investing and it is important to look at the trend in ROE over time.

Relative Valuation

In terms of valuation, the stock sells at a trailing P/E of 24.1x, trading at a discount compared to an average of 33.9x for the industry. To use another metric, its price-to-book ratio of 4.10x indicates a premium versus the industry average of 2.90x while the price-to-sales ratio of 2.70x is below the industry average of 2.85x.

As we can see in the next chart, the stock price has an upward trend in the five-year period. If you had invested $10,000 five years ago, today you could have $17,891, which represents a 12.3% compound annual growth rate (CAGR).

Final Comment

As outlined in the article, Becton Dickinson is the world's largest manufacturer and distributor of medical surgical products and continues to generate steady cash flows, keeping itself as an industry-leading dividend.

The PE relative valuation and the return on equity that significantly exceeds the industry average and make me feel bullish on this stock.

Hedge fund gurus Jean-Marie Eveillard (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), John Hussman (Trades, Portfolio), Jim Simons (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Richard Pzena (Trades, Portfolio) and Donald Yacktman (Trades, Portfolio) added this stock to their portfolios in the second quarter of 2014 as well as Manning & Napier Advisors, Inc.

Disclosure: Omar Venerio holds no position in any stocks mentioned

Also check out: Donald Yacktman Undervalued Stocks Donald Yacktman Top Growth Companies Donald Yacktman High Yield stocks, and Stocks that Donald Yacktman keeps buying Jim Simons Undervalued Stocks Jim Simons Top Growth Companies Jim Simons High Yield stocks, and Stocks that Jim Simons keeps buyingAbout the author:Omar VenerioWe provide independent fundamental research and hedge fund and insider trading focused investigation.

Currently 2.50/51

Knowing When to Cash In

Picking the right stocks is only half the battle. You have to know when to sell. This can be harder than you think: having done enough research to appreciate the positive aspects of a company, you may be inclined to disbelieve information that its expansion strategy is not working out as well as predicted, or that the stock price is simply overvalued.

One of the investment choices at Roadrunner Stocks that I am proudest of this year was my "sell" recommendation on Carbo Ceramics (NYSE: CRR) on June 5 of this year. At the time the stock price was up around 136. Since then, it has collapsed by more than 50 percent in less than four months. At last look it was selling at around 66. Quite a drop!

Here's what I wrote at the time: "Carbo Ceramics is still a great company, but its stock price appears fully valued and has run up on speculation concerning its Kryptosphere proppant for deepwater drilling applications. Given the forecast for deepwater slowdown, the excitement over Kryptosphere is probably overdone and setting the stock up for disappointment. In any event, Carbo Ceramics is the most expensive stock in the Value Portfolio, has a high short interest-to-float ratio above 20%, and no longer qualifies as cheap, so it's time to let go."

Why were we in favor of Carbo Ceramics to begin with? The firm recently introduced its most high-tech ceramic proppant to date: Kryptosphere. This new proppant targets the deepest (30,000+ feet down), highest-pressure deep-water wells in the Lower Tertiary of the Gulf of Mexico. The pressure per square inch (OSI) in these deep-water wells can exceed 20,000 pounds and Kryptosphere is the only proppant that can handle this enormous stress level without collapsing. According to Carbo, Kryptosphere is the "strongest, highest conductivity proppant ever made."

Besides the fact that Carbo raised its dividend for 13 consecutive years and has a deb! t-free balance sheet, the main reason I liked Carbo is its technological leadership. Many oil and gas drillers are penny wise and pound foolish, choosing cheap proppant based on sand or inferior ceramics from China, Brazil, or Russia. Although these inferior proppants have a quick payback period, they damage the wells and make them much less productive over their lifespan than would be the case if they had used Carbo's state-of-the-art proppant.

Carbo CEO Gary Kolstad has been making the rounds of investment conferences educating analysts and the investing public about the increased estimated ultimate recovery (EUR) available from using Carbo's proppant and hopefully he is making headway. Drillers aren't stupid and eventually will understand that it is better to spend more up front for high-quality proppant if it means a higher present value of total profit over time.

Furthermore, Carbo's technological advances in deep-water proppant will have beneficial effects on its entire line of proppant. CEO Kolstad stated the following about Kryptosphere:

What we've learned in creating this new proppant will now benefit the rest of our proppant. I would be surprised if we don't obsolete all of our products. My dream is that we are going to create something here and obsolete everything we've ever made up to this time. And in fact, we're in little bit of a journey right now to figure out the capital cost to do conversions on plants to that. So if we do that and we hope we can maintain a similar cost structure, we certainly will obsolete a lot of these poor proppants like the Chinese.

One of the main components of competitive advantage is differentiation, and Carbo's Kryptosphere technology may be the differentiator that maintains Carbo's market-leadership position with high profit margins for years to come.

So while the long-term fundamentals of the company remain strong, the price simply rose too quickly. A lot of other people shared our enthusiasm for the c! ompany, b! asically. I like to think we were among the first to take our profits and run, though!

This is why it's so important to subscribe to Roadrunner Stocks. You can find "stock tips" anywhere. Sell signals are harder to come by – but they can make all the difference.

Becton and Dickinson Provides Shareholders with Solid Returns

Knowing When to Cash In